S&P 500 Futures: Italy Dip And Rip

Last week followed a shortened holiday week, and with the number of heavy economic releases on the calendar, we speculated that volume would increase. We also thought that after the lightly traded ‘thin-to-win’ move to new all time highs, the heavier volume would show weakness. This lead MrTopStep to call for a 1% decline on the week, and the next 30 handles from 2210 lower.

While the trade wasn’t easy, it was eventually rewarding for short sellers late Thursday, and in Friday’s overnight session. The S&P 500 futures dropped from a 2213.75 high on Wednesday, down to 2184.25 early Friday morning in globex.

Friday’s NFP day turned out to be one of the quietest in recent memory. The ES traded in a 10.50 handle range for most of the day. After making a low at 2186.75 early, and then trading up to 2197.25 mid morning, there was weakness the rest of the day. The market on close imbalance came in at $25 million to buy, the smallest size of the week, but did break a string of 4 consecutive days of heavy sell imbalances that totalled over $4 billion to sell for the week.

Sunday’s Italian referendum vote went down in defeat and Italy’s Prime Minister, Matteo Renzi, will now be offering his resignation from office.

On the globex open, the S&P 500 futures gapped lower to 2184.00, down 7 handles from Friday’s last print, and then dropped further to make an early low of 2179.00. This gap lower completed MrTopStep’s “next 30 handles” call. After bottoming in the first 30 minutes, the S&P’s rallied up to 2189.00, a 10 handle bounce, early in the Tokyo session before falling back to 2182.00 just before the Euro open.

Right on the European equity open the index futures started to roar higher. There was a 23.75 handle rally in less than two hours before falling back to 2198.75. Support was found there, and the futures are now charging back above 2200.00, trading at 2205.25. The ESZ looks like it may be rolling over again, making a lower high, as it last printed 2199.75, up 7.75 handles on the session, with volume at 230k as of 6:30 am cst.

Going into this week, the economic calendar is busy, with a lighter batch of reports. Now that we’re past the GDP, NFP and Italian referendum vote, and with the S&P’s having sold late last week, the money that moved out of equities last week could be put back to work this week, beginning with “mutual fund” Monday.

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The levels are clear, the old 2191.50 previous all time high, the big round 2200 level, and 2210, all acted as pivots this past week, and these are the key levels going forward.

In Asia, 8 out of 11 markets closed lower (Shanghai -1.21%), and in Europe 11 out of 11 markets are trading higher this morning (FTSE -1.04%). This week’s economic calendar includes 24 reports, 3 Fed speakers and 13 U.S. Treasury events. Today’s economic calendar includes the Gallup US Consumer Spending Measure, William Dudley Speaks, Charles Evans Speaks, PMI Services Index, ISM Non-Mfg Index, Labor Market Conditions Index, a 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, TD Ameritrade IMX, and James Bullard Speaks.

Our View: The S&P’s didn’t stay weak very long after the Italian referendum, but it did give me the out I was looking for. Originally, I was going to hold into Sunday night, but when the (ESZ16:CME) moved down over 20 handles (points), I tried to get a few more and bid 2184.25. That ended up being the early low for the week. My gut told me to stay patient, that i would get my price, and I covered at 2183.75, a 22.25 handle profit. I have to admit, I called and missed a lot of good day trades last week, but I was worried I would not be able to get the short back on.

This week has another heavy round of economic reports, and the ECB meeting where the chatter has been about reducing the size of their bond buying program. Either way it should be a fairly busy week. Our view is two fold; 1) we want to keep in mind the PitBulls rule about the S&P being firm early in the day and early in the week, and 2) start thinking about selling a rally before the fed. As for today, sell the early rallies and buy weakness.

As always, please use protective buy and sell stops when trading futures and options.

• In Asia 8 out of 11 markets closed lower: Shanghai Comp -1.21%, Hang Seng -0.26%, Nikkei -0.82%
• In Europe 11 out of 11 markets are trading higher: CAC -1.06%, DAX -0.62%, FTSE -1.04% at 6:00am ET
• Fair Value: S&P -0.95, NASDAQ -0.32, Dow -10.89
• Total Volume: 1.68m ESZ and 3.5k SPZ traded

Original post

Written By: MrTopStep